Performance Management (Cycle & Program) - Explained
What is Performance Management?
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Table of ContentsWhat is Performance Management?What is the Performance Management Cycle?Forms of Performance ManagementWhat is a Performance Management Program?What is a Business Performance Measurement System?How are Business Performance Management Systems Used?Why undertake Business Performance Measurement? What are Objective and Subjective Performance Measures?What are Financial and Non-financial Measures?What are Leading or Lagging Measures?What are Complete and Incomplete Measures?What are Responsive and Non-Responsive Measures?What are Tangible and Intangible Measures?To What are Performance Metrics Related? What are key performance indicators?What is a Diagnostic Control System?What is an Interactive Control System?What is double-loop learning? What is a BPM Framework?What are Business Performance Reference Models?
What is Performance Management?
Performance Management is the process of continuously identifying, measuring, and developing workforce performance within the organization. This means aligning the goals and objectives of individuals, groups, and the organization.
Managers project, identify, compare, and foster performance within the organization. It is a systematic assessment of the individual, group, and organizational performance to improve performance over time.
Back to: BUSINESS MANAGEMENT
What is the Performance Management Cycle?
The Performance Management Cycle proceeds as follows:
- Plan - Develop plans consisting of outcomes and behaviors.
- Act - Implement those plans at each level of the organization.
- Monitor - Monitor how closely those plans are followed (behaviors) and the results from those plans (outcomes).
- Review - Review the results and take corrective actions as necessary to improve any deviations from standards or expectations.
Performance management seeks to improve employee performance by ensuring employees understand their key job functions, creating awareness of the performance level expected, providing continuous feedback on performance, and undertaking training and development.
Forms of Performance Management
It describes the methodologies, metrics, processes, systems and software which are used for monitoring and managing the business performance of an enterprise.
- Business Performance Management
- Strategic Performance Management
- Enterprise Performance Management
- Corporate Performance Management
What is a Performance Management Program?
Effective performance management programs have the following attributes in common:
- Creating a link between employees tasks and the missions and objectives of the organization. Employees should know the relation between their objectives and the organizational overall goals.
- Formulating particular results based on job performance. For instance, what results does an employees job position produce? What is the impact of employees activities on the organization? What should be the communication strategy for workers, supervisors, etc.?
- Setting standards that are possible to attain. Employees should share their views on measuring success, or setting performance expectations. Expectations include results, signifying the final goods and services the employees should deliver; actions signifying the process that employees should follow in order to produce a product or render a service; and behaviors signifying the values that employees should exhibit during work.
- Making plans revolving around job development. Both employees and managers should contribute in enlisting the duties of a job. Employees should also be given the authority to tell what new skills they want to learn, and how they plan to use them in favor of the company.
- Conducting regular meetings. Rather than awaiting appraisal on a yearly basis, employees and managerial team should meet on a regular basis to assess performance.
What is a Business Performance Measurement System?
Business Performance Measurement (BPM) systems, commonly known as Control Systems, are tools used to improve control over the firm (manage performance).
Specifically, business performance measurement systems are formal procedures or routines (generally based on company data or qualitative information) managers employ to maintain or change organizational activities.
How are Business Performance Management Systems Used?
Companies which to understand the performance of the various operational units or functional areas of a company (corporate-level, business unit, functional units, support unites, teams, task forces, project groups, and individuals).
A BPM system aids the manager in conducting analysis of the various business units in hopes of aligning them strategically. This means setting goals, providing feedback, and measuring progress.
Generally, BPMs allow for the measurement of performance against established metrics or company benchmarks (such as prior performance - self comparison, performance of another business unit, industry average, or a specific competitor’s performance).
Generally, these systems focus on quantitative measures or metrics. Though, because a measure is used for the purpose of comparison, the metric need not represent an absolute value.
The BPM system normalizes the measure(s). This allows for the creation of a general value that allows for intra-company or inter-company comparisons.
Why undertake Business Performance Measurement?
The following are reasons companies measure business performance:
- Monitoring and controlling activities
- Continuous Improvement
- Increase efficiency and effectiveness
- Aligning organizational goals with objectives
- Provide incentives (rewards and disciplines)
There are generally five major tensions within a firm:
- Balancing profit, growth and control
- Balancing short term results against long-term capabilities and growth opportunities
- Balancing performance expectations of different constituencies
- Balancing opportunities and attention
- Balancing the motives of human behavior
What are Objective and Subjective Performance Measures?
Measures used in business performance measurement can be objective or subjective.
Objective measures are capable of measure by those outside of the firm. Subjective measures can only be measured by specific stakeholders to whom the measure matters.
What are Financial and Non-financial Measures?
Business performance measures may be financial or non-financial.
Financial measures are typically recorded through standard accounting practice.
Non-financial measures are generally related to procedural aspects or stakeholder satisfaction.
What are Leading or Lagging Measures?
Business performance measures may be leading or lagging.
Lagging measures relate to past performance and rarely provide insight into future performance.
Leading indicators relate to projections about future performance.
What are Complete and Incomplete Measures?
Business performance measures are either complete or incomplete.
Complete measures capture seek to capture all the relevant attributes of achievement.
Incomplete measures do not capture all relevant information and are, therefore, incomplete in what they represent.
What are Responsive and Non-Responsive Measures?
Business performance measures are also responsive or not responsive.
Responsive measures can be controlled by the firm (often in the short term).
Non-responsive measures cannot be immediately controlled by the form. An example would be goodwill or consumer confidence.
What are Tangible and Intangible Measures?
Business performance measures can refer to tangible or intangible.
Tangible means that they are capable of being touched - such as physical output (inventory levels).
Intangible measures do not result in a touchable output, but are important or valuable (such as skills, knowledge, or ability).
To What are Performance Metrics Related?
Measures may be related to:
- inputs into a process,
- feedback on the performance of a process itself
- to the outcomes or outputs from the process.
- to human performance,
- process performance
- market conditions.
What are key performance indicators?
Key performance indicators or KPIs are metrics that are critical indicators of firm performance. They generally related to the firm’s strategy.
What is a Diagnostic Control System?
Diagnostic control systems are generally used for comparison of Key Performance Indicators to company benchmarks (ranges).
A diagnostic system generally establishes both low and thresholds for performance in these KPI areas.
Any deviation is recorded. This provides an alert to the manager. Managers take this information and take action or manage by exception.
They are often used in concert with Interactive Control Systems?
What is an Interactive Control System?
Interactive control systems are used to collect and manage information. Specifically, they allow managers to interact with the personnel who they supervise in the value production system.
Perhaps most importantly, they allow managers to better integrate new data and learning into the decision-making process.
They are often used in concert with Diagnostic Control Systems.
What is double-loop learning?
Double loop learning is the process by which individuals or firms develop and apply rules and systems to the decision-making process. This the primary loop.
The learning or feedback from applying these rules and systems provides the manager with the needed information to modify or change the rules. This is the second loop.
This approach allows users to challenge assumptions and better integrate newly acquired knowledge.
What is a BPM Framework?
A framework is an approach to measuring business performance.
Popular business performance frameworks include:
- Balanced Scorecard
- Economic Value Added
- Activity-based costing
- Quality Management
- Customer Value Analysis
- Action-Profit Linkage Model
What are Business Performance Reference Models?
Reference models are more rigorous standards focusing on specific performance metrics and the related business processes. These reference models generally apply within an industry or among common functional units in firms.
Common reference models include:
- Supply chain management
- New product development
- Business Performance Measurement
- Balanced Scorecard
- Economic Value Added
- Activity-Based Management
- Quality Management
- Action Profit Linkage Model
- Business Activity Monitoring
- Gap Analysis
- Strategy Diamond
- BCG Growth-Share Matrix
- GE McKinsey Matrix
- Value Reporting Framework
- Pyrrhic Victory